§269 — Acquisitions made to evade or avoid income tax

101 cases·23 followed·24 distinguished·1 questioned·53 cited—23% support

Statute Text — 26 U.S.C. §269

(a)In general

If—

(1)

any person or persons acquire, directly or indirectly, control of a corporation, or

(2)

any corporation acquires, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation,

and the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Secretary may disallow such deduction, credit, or other allowance. For purposes of paragraphs (1) and (2), control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation.

(b)Certain liquidations after qualified stock purchases

(1)In general

If—

(A)

there is a qualified stock purchase by a corporation of another corporation,

(B)

an election is not made under section 338 with respect to such purchase,

(C)

the acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than 2 years after the acquisition date, and

(D)

the principal purpose for such liquidation is the evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which the acquiring corporation would not otherwise enjoy,

then the Secretary may disallow such deduction, credit, or other allowance.

(2)Meaning of terms

For purposes of paragraph (1), the terms “qualified stock purchase” and “acquisition date” have the same respective meanings as when used in section 338.

(c)Power of Secretary to allow deduction, etc., in part

In any case to which subsection (a) or (b) applies the Secretary is authorized—

(1)

to allow as a deduction, credit, or allowance any part of any amount disallowed by such subsection, if he determines that such allowance will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or

(2)

to distribute, apportion, or allocate gross income, and distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow such deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to such allowance only to such extent as he determines will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or

(3)

to exercise his powers in part under paragraph (1) and in part under paragraph (2).

Treasury Regulations

Treas. Reg. §Treas. Reg. §1.269-1 Meaning and use of terms
Treas. Reg. §Treas. Reg. §1.269-1(a) Allowance.
Treas. Reg. §Treas. Reg. §1.269-1(b) Evasion or avoidance.
Treas. Reg. §Treas. Reg. §1.269-1(c) Control.
Treas. Reg. §Treas. Reg. §1.269-1(d) Person.
Treas. Reg. §Treas. Reg. §1.269-2 Purpose and scope of section 269
Treas. Reg. §Treas. Reg. §1.269-2(a) General.
Treas. Reg. §Treas. Reg. §1.269-2(b) Disallowance of deduction, credit, or other allowance.
Treas. Reg. §Treas. Reg. §1.269-3 Instances in which section 269(a) disallows a deduction, credit, or other allowance
Treas. Reg. §Treas. Reg. §1.269-3(a) Instances of disallowance.
Treas. Reg. §Treas. Reg. §1.269-3(b) Acquisition of control; transactions indicative of purpose to evade or avoid tax.
Treas. Reg. §Treas. Reg. §1.269-3(c) Acquisition of property; transactions indicative of purpose to evade or avoid tax.
Treas. Reg. §Treas. Reg. §1.269-3(d) Ownership changes to which section 382(l)(5) applies; transactions indicative of purpose to evade or avoid tax—(1) In general.
Treas. Reg. §Treas. Reg. §1.269-3(e) Relationship of section 269 to 11 U.
Treas. Reg. §Treas. Reg. §1.269-4 Power of district director to allocate deduction, credit, or allowance in part
Treas. Reg. §Treas. Reg. §1.269-5 Time of acquisition of control
Treas. Reg. §Treas. Reg. §1.269-5(a) In general.
Treas. Reg. §Treas. Reg. §1.269-5(b) Application of general rule to certain creditor acquisitions.
Treas. Reg. §Treas. Reg. §1.269-6 Relationship of section 269 to section 382 before the Tax Reform Act of 1986
Treas. Reg. §Treas. Reg. §1.269-7 Relationship of section 269 to sections 382 and 383 after the Tax Reform Act of 1986

101 Citing Cases

FOLLOWED Barnes Group, Inc. and Subsidiaries, Petitioner T.C. Memo. 2013-109 · 2013

269 provides the Secretary with the authority to disallow deductions, credits, or other allowances secured by a taxpayer in an acquisition when the principal purpose ofthe acquisition was the evasion or avoidance ofFederal income tax.

FOLLOWED John Paul Reddam, Petitioner T.C. Memo. 2012-106 · 2012

ner's OPIS transaction lacked economic substance; (4) even ifthe OPIS transaction functioned for tax purposes in the manner petitioner intended, the claimed losses - 37 - are artificial and not deductible under section 165; and (5) any allowable loss is limited by the at-risk rules ofsection 465." We hold that petitioner's OPIS transaction lacked economic substance.

FOLLOWED Tribune Company, as agent of and successor by merger to the former The Times Mirror Company, Itself and Its Consolidated Subsidiaries, Petitioner 125 T.C. No. 8 · 2005

The notice also determined that section 269 applies to deny nonrecognition treatment of the Bender transaction.

Mark McKay & Christine A. Beck-McKay, Petitioners T.C. Memo. 2012-166 · 2012

ges that because S corporations are passthrough entities for Federal income tax purposes and do not keep their own deductions and losses (i.e., S corporation deductions and losses automatically pass through to the shareholders), it is extremely rare that the Commissionerwould seek to make a section 269 adjustment in the context ofa taxpayer's acquisition ofan S corporation. Petitioners go further and contend that section 269 was never intended to apply to the acquisition ofstock in S corporation

Bradley T. & Terri Jensen, Petitioner T.C. Memo. 2012-166 · 2012

Cases öfthe following petitioners are consolidated herewith: G. Steven and Carrie J. Neff, docket No. 6000-09; Todd R. and Andrea Pedersen, docket No. 6290-09; Keith and Melisa Nellesen, docket No. 6303-09; Bradley T. and Terri Jensen, docket No. 6449-09; and Mark McKay and Christine A. Beck-McKay, docket No. 12128-09. An additiona

Joyce H. Sams, Petitioner · 2002

269A. The application of sec. 269A to a personal service corporation (PSC) requires a finding that the principal purpose for forming or availing of that PSC is the avoidance or evasion of income tax by reducing income or securing the benefit of an expense, deduction, credit, exclusion, or other allowance for any employee-owner which would not otherwise be available. Sec. 269A(a). There are no facts in the record that would lead us to conclude that petitioner’s principal purpose for incorporating

Suzy's Zoo, Petitioner 114 T.C. No. 1 · 2000

- 12 - (ii) Qualified employee- owner.--For purposes of this subparagraph, the term “qualified employee-owner” means any individual who is an employee-owner of the corporation (as defined in section 269A(b)(2)) and who is a writer, photographer, or artist.

Plains Petroleum Company & Subsidiaries, Petitioner T.C. Memo. 1999-241 · 1999

In the context of section 269, "principal purpose" means that the evasion or avoidance purpose must outrank, or exceed in importance, any other purpose.

Gary L. & Ann T. Fish, Petitioner T.C. Memo. 2013-270 · 2013

398, 405 (1988), the court considered whether the taxpayer's common stockholder satisfied the 50% voting power standard ofsection 269.20 The common stockholder owned 100,000 shares ofcommon stock ofthe taxpayer and the preferred stockholder owned 104,000 shares ofpreferred stock.

Tribune Co. v. Commissioner 125 T.C. 110 · 2005

The principal issues for decision are: (1) Whether the Bender transaction qualifies as a reorganization under either section 368(a)(1)(A) and (2)(E) or section 368(a)(1)(B) and, if so, (2) whether section 269 nonetheless dictates that gain be recognized on the Bender transaction.

Steven M. Petersen & Pauline Petersen, Petitioners · 2017

See generally Austin v.

John E. Johnstun & Larue A. Johnstun, Petitioners · 2017

See generally Austin v.

G. Steven & Carrie J. Neff, Petitioner T.C. Memo. 2012-244 · 2012

269 relatin to petitioners' acquisition ofan S corporation. SERVED kJG 2 7 2012 - 2 - [*2] W. Waldan Lloyd, David R. York, and Daniel S. Daines, for petitioners. Charles B. Burnett and Milan H. Kim, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION SWIFT, Judge: In these consolidated cases, respondent determined deficiencies of$120,097

Gerdau Macsteel Inc. and Affiliated Subsidiaries, Petitioner 139 T.C. No. 5 · 2012

The DDCL acknowledged that the transaction referenced therein presented risks and could be subject to antiavoidance provisions such as section 269 or section 1.1502-20, Income Tax Regs.

Bradley T. & Terri Jensen, Petitioner T.C. Memo. 2012-244 · 2012

Gerdau Macsteel, Inc. & Affiliated Subsidiaries v. Commissioner 139 T.C. 67 · 2012

The DDCL acknowledged that the transaction referenced therein presented risks and could be subject to antiavoidance provisions such as section 269 or section 1.1502-20, Income Tax Regs.

Westsphere Management, Corp., Petitioner T.C. Memo. 2011-19 · 2011

ty under section 6662(a) for each of the years in issue.3 FINDINGS OF FACT Some facts are stipulated and are so found. The stipulation of facts, with accompanying exhibits, is incorporated herein by this reference. 2(...continued) Dr. Robucci under sec. 269A. We need not consider respondent's alternative arguments because we shall sustain respondent's adjustments with respect to Dr. Robucci on the.basis of our determination to disregard the corporations for Federal income tax purposes. Moreover,

T.L. Robucci & Associates, M.D., P.C., Petitioner T.C. Memo. 2011-19 · 2011

Larry D. Klaas, Lisa G. Klaas and Apex Insurance Company, an Anguilla British West Indies Corporation, Petitioners T.C. Memo. 2009-90 · 2009

Klaas on the gain from the sale of Silver-Spur that are based on section 367, relating to the denial of nonrecognition treatment for transfers from a domestic to a foreign corporation, and on section 269, relating to the disallowance rules for tax-motivated corporate transactions .

Suzanne L. Porter a.k.a. Suzanne L. Holman, Petitioners 132 T.C. No. 11 · 2009

Rather, for example, section._26.9(a) .provides that "the Secretary may disallow," losses acquired in tax-motivated transactions, but the case law ; under section 269 does not indicate a special grant of discretion .

Porter v. Commissioner 132 T.C. 203 · 2009

Rather, for example, section 269(a) provides that “the Secretary may disallow” losses acquired in tax-motivated transactions, but the caselaw under section 269 does not indicate a special grant of discretion.

Ralston Purina Company and Subsidiaries, Petitioner 131 T.C. No. 4 · 2008

For example, in section 269 the Commissioner is given substantial discretionary authority to label a transaction as engaged in for the principal purpose of tax evasion or avoidance and to disallow related deductions.

Ralston Purina Co. & Subsidiaries v. Commissioner 131 T.C. 29 · 2008

Kevin R. Johnston, Petitioner T.C. Memo. 2000-315 · 2000

to player rather than to PSC which received the payments), affd. without published opinion 734 F.2d 20 (9th Cir. 1984). We also note that Congress has enacted various Code provisions in an attempt to end various perceived abuses of PSC’s. See, e.g., sec. 269A. Second, the authorities recognizing PSC’s as the true earners of the income generated by the shareholders’ services have noted the tension between the assignment of income rule set forth in Lucas v. Earl, 281 U.S. 111 (1930), and the impor

Samson Investment Company and Subsidiaries, Petitioner T.C. Memo. 1998-271 · 1998

Ramsey was acquired with the principal purpose of avoiding Federal income taxes in violation of section 269, we also found that the taxpayer continued to carry on, after the acquisition, substantially the same trade or business conducted before the acquisition.

Berry Petroleum Co. v. Commissioner 104 T.C. 584 · 1995

Achiro v. Commissioner 77 T.C. 881 · 1981

Rocco, Inc. v. Commissioner 72 T.C. 140 · 1979

Dittler Bros. v. Commissioner 72 T.C. 896 · 1979

Daytona Beach Kennel Club, Inc. v. Commissioner 69 T.C. 1015 · 1978

O'Mealia Research & Development, Inc. v. Commissioner 64 T.C. 491 · 1975

Davis v. Commissioner 64 T.C. 1034 · 1975

D'Arcy-MacManus & Masius, Inc. v. Commissioner 63 T.C. 440 · 1975

Canaveral International Corp. v. Commissioner 61 T.C. 520 · 1974

Glen Raven Mills, Inc. v. Commissioner 59 T.C. 1 · 1972

Norman Scott, Inc. v. Commissioner 48 T.C. 598 · 1967

Local Finance Corp. v. Commissioner 48 T.C. 773 · 1967

Siegel v. Commissioner 45 T.C. 566 · 1966

Clarksdale Rubber Co. v. Commissioner 45 T.C. 234 · 1965

Cromwell Corp. v. Commissioner 43 T.C. 313 · 1964

Beckett v. Commissioner 41 T.C. 386 · 1963

Federal Cement Tile Co. v. Commissioner 40 T.C. 1028 · 1963

Zanesville Investment Co. v. Commissioner 38 T.C. 406 · 1962

Frank Spingolo Warehouse Co. v. Commissioner 37 T.C. 1 · 1961

Swiss Colony, Inc. v. Commissioner 52 T.C. 25 · 1969

VGS Corp. v. Commissioner 68 T.C. 563 · 1977

Your Host, Inc. v. Commissioner 58 T.C. 10 · 1972

Southern Dredging Corp. v. Commissioner 54 T.C. 705 · 1970

Modern Home Fire & Casualty Insurance v. Commissioner 54 T.C. 839 · 1970

Pepi, Inc. v. Commissioner 52 T.C. 854 · 1969

Industrial Suppliers, Inc. v. Commissioner 50 T.C. 635 · 1968

Bijou Park Properties, Inc. v. Commissioner 47 T.C. 207 · 1966

V. H. Monette & Co. v. Commissioner 45 T.C. 15 · 1965

Naeter Bros. Publishing Co. v. Commissioner 42 T.C. 1 · 1964

Ach v. Commissioner 42 T.C. 114 · 1964

Bush Hog Manufacturing Co. v. Commissioner 42 T.C. 713 · 1964

Fawn Fashions, Inc. v. Commissioner 41 T.C. 205 · 1963

Nutt v. Commissioner 39 T.C. 231 · 1962

Goodwyn Crockery Co. v. Commissioner 37 T.C. 355 · 1961

Baton Rouge Supply Co. v. Commissioner 36 T.C. 1 · 1961

Temple Square Mfg. Co. v. Commissioner 36 T.C. 88 · 1961

J. G. Dudley Co. v. Commissioner 36 T.C. 1122 · 1961

Estate of Joachim v. Commissioner 22 T.C. 875 · 1954

Harper Group v. Commissioner 96 T.C. 45 · 1991

Sargent v. Commissioner 93 T.C. 572 · 1989

Universal Manufacturing Co. v. Commissioner 93 T.C. 589 · 1989

Martin Fireproofing Profit-Sharing Plan & Trust v. Commissioner 92 T.C. 1173 · 1989

G.D. Searle & Co. v. Commissioner 88 T.C. 252 · 1987

Eli Lilly & Co. v. Commissioner 84 T.C. 996 · 1985

Superior Coach of Florida, Inc. v. Commissioner 80 T.C. 895 · 1983

Pike v. Commissioner 78 T.C. 822 · 1982

Keller v. Commissioner 77 T.C. 1014 · 1981

Foglesong v. Commissioner 77 T.C. 1102 · 1981

Insilco Corp. v. Commissioner 73 T.C. 589 · 1979

Brannon's of Shawnee, Inc. v. Commissioner 71 T.C. 108 · 1978

Capri, Inc. v. Commissioner 65 T.C. 162 · 1975

Greenberg v. Commissioner 62 T.C. 331 · 1974

Kerry Investment Co. v. Commissioner 58 T.C. 479 · 1972

Lewisville Investment Co. v. Commissioner 56 T.C. 770 · 1971

Philipp Brothers Chemicals, Inc. v. Commissioner 52 T.C. 240 · 1969

Estelle Morris Trusts Nos. 401 through 410 v. Commissioner 51 T.C. 20 · 1968

H. F. Ramsey Co. v. Commissioner 43 T.C. 500 · 1965

Frederick Steel Co. v. Commissioner 42 T.C. 13 · 1964

Humacid Co. v. Commissioner 42 T.C. 894 · 1964

Euclid-Tennessee, Inc. v. Commissioner 41 T.C. 752 · 1964

Dillier v. Commissioner 41 T.C. 762 · 1964

Hamburgers York Road, Inc. v. Commissioner 41 T.C. 821 · 1964

Kessmar Construction Co. v. Commissioner 39 T.C. 778 · 1963

J. T. Slocomb Co. v. Commissioner 38 T.C. 752 · 1962

Army Times Sales Co. v. Commissioner 35 T.C. 688 · 1961

F. C. Publication Liquidating Corp. v. Commissioner 36 T.C. 836 · 1961

Thomas E. Snyder Sons Co. v. Commissioner 34 T.C. 400 · 1960

Urban Redevelopment Corp. v. Commissioner 34 T.C. 845 · 1960

Easson v. Commissioner 33 T.C. 963 · 1960

Motor Mart Trust v. Commissioner 4 T.C. 931 · 1945

Alcazar Hotel, Inc. v. Commissioner 1 T.C. 872 · 1943

Claridge Apartments Co. v. Commissioner 1 T.C. 163 · 1942

United States v. Fletcher 562 F.3d 839 · Cir.

In Re South Beach Securities, Inc. 606 F.3d 366 · Cir.

Scattered Corporatio v. William Nea · Cir.

United States v. Michael Fletcher · Cir.

§269 — Acquisitions made to evade or avoid income tax

101 Citing Cases

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